Sole Trader status

Airthrey Capital

Well-known member
370 16
Is there anybody from within the T2W community who is a full-time trader (i.e trades for a living) who has gone down the "sole trader status" route as opposed to Limited company status?

If so, has this set-up been satisfactory to your needs?...Are there definite advantages?...What are the disadvantages?

I am considering going down this route, and would appreciate any feedback from others in a similar situation.

Feel free to reply off-site if you prefer!
 

JonnyT

Senior member
2,560 22
Basically everything you make is liable to income tax and NI

Trading through a Company if you use Futures only may have advantages depending on wether you are defined as a 'Close Investment Company' or not.

Trade shares as you will be whalloped for 30% CGT on everything.

JonnyT
 

Grant

Junior member
35 0
Sole Trader

Blair,

The problem is getting the inland revenue to accept you as a bona fide trader.

But you'll only be taxed on net profit (can write off your losses) as income, not on capital gains. And your expenses can be offset against your tax liability - stock up on Reuters and Bloomberg screens.

(I'm really degenerating - Saturday and I'm starting to sound like a ******** accountant.)
 

Airthrey Capital

Well-known member
370 16
Believe it or not, I have no qualms about paying my taxes and NI contributions......

However, I would like to do so in a way that is the most efficient (as well as legit!)

I primarily trade FTSE options (write them).

If I do this full time, and it becomes my only source of income (in which case I would deem myself to be a bona fide trader).........

Am I better off doing this as a "sole trader".... (Trading as Blairlogie Investments, perhaps)

Or am I even better off simply doing this as Mr. Blairlogie?.

Am I taxed on income?....or capital gains?

I am sure there are some very complex ways to doing all this, but I can't believe that there aren't people out there who already trade full-time, and still satisfy the tax man, pay NI contributions etc.

And by the way, before anyone suggests spreadbetting, my understanding is that if you do this full-time and it is your sole source of income, the tax man will nab you regardless.

It's a minefield....I need help!

*NB I am only trading my own funds, nobody elses.
 

Healey

Junior member
11 0
Hi Blair

As I understand it there are 4 ways you could set yourself up:

Sole trader
Limited liability partnership (ie Fred Jones LLP)
Limited Company (ie Fred Jones Ltd)
None of the above - you trade as yourself and will be subject to CGT ???

I am not an expert at this but I looked closely at the pros and cons of LLP vs Ltd and came down in favour of Ltd with advice from my accountant. Its tax efficiency is that you are paid as an employee only the min amount needed to get NI (ca £4900). The rest is paid as dividends out of the profits (which are taxed @ ca 19% for a small company) to who ever are the shareholders in the Company, in my case my good wife and 2 starving kids. Because they are lower rate tax payers, they no further tax is paid.

However, the IR is wise to this and there is presently a test case in court to see if they can stop this fiddle. Even if they do, the accountant says there are still tax advantages to the Ltd Company. However there are costs to set it up, do the Company Secretarial and PAYE bits, and get the accounts done. All up about £1000 to £1500 pa.

My advise - find a friendly accountant and discuss !

Hope that helps.
 

Airthrey Capital

Well-known member
370 16
Thanks to all of those who have been kind enough to take the time to reply to me both on and off-line.

I suspect that I will be giving my nearest friendly neighbourhood accountant a call on Monday.

Should be interesting (NOT!)
 

JonnyT

Senior member
2,560 22
You cannot trade as yourself and save on the CGT if this is your major source of Income.

The Inland Revenue will be down on you like a ton of bricks with a full Tax Enquiry.

JonnyT
 

Airthrey Capital

Well-known member
370 16
JonnyT said:
You cannot trade as yourself and save on the CGT if this is your major source of Income.

The Inland Revenue will be down on you like a ton of bricks with a full Tax Enquiry.

JonnyT

By saying "you cannot trade as yourself" do you mean I cannot trade as Mr. Blairlogie, or do you mean I cannot trade as a business with sole trader status? Or do you mean I can trade as neither, only as a limited company to save on CGT?
 

Airthrey Capital

Well-known member
370 16
There must be lots of full -time traders out there!....What do YOU do?

Have you set up limited companies? Do you have sole trader status? Have you gone off-shore?Do you spreadbet?

Nobody so far seems forthcoming with their own set-ups which is disappointing.

Pm me if you prefer to be off-line.
 

MysticalTrader

Active member
165 1
I am not a full time trader but it seems to me that spreadbetting is the way to go, at least for me, at least for now. No tax so the problems you describe dont arise.

MT


Blairlogie said:
There must be lots of full -time traders out there!....What do YOU do?

Have you set up limited companies? Do you have sole trader status? Have you gone off-shore?Do you spreadbet?

Nobody so far seems forthcoming with their own set-ups which is disappointing.

Pm me if you prefer to be off-line.
 

donaldduke

Experienced member
1,665 257
You cannot trade as yourself and save on the CGT if this is your major source of Income.

JonnyT ,

This would mean:
Someone earning 200K in their full time job but making 50K trading on the side can therefore claim CGT.

But someone with a job earning 15K and making 50K trading will taxed differently on the trading bit?

Is this correct? I cant see this happening.

Personally i cant see the IR coming down on anyone who claims there trading as CGT
regardless of what they earn. The savings for someone in the low tax bracket claiming
the CGT allowance is about 1500 pounds and someone in higher tax bracket is 3000 pounds.

Even if they did you get easily get around it:
You could do most of your trading though a Ltd company (pay yourself a salary+dividends) and trade a bit personally on the side to get your CGT allowance.

Trading is one of the few businesses that you can easily take Offshore, while you still live
here, and in that case the IR wouldnt get any tax at all, its not in the IRs interests to come down
hard on Traders.
 
Last edited:

Grant

Junior member
35 0
donaldduke said:
Trading is one of the few businesses that you can easily take Offshore, while you still live
here, and in that case the IR wouldnt get any tax at all, its not in the IRs interests to come down
hard on Traders.

No, you won't pay tax as long as the money stays off-shore, and more importantly from the IR's perspective, as long as your not spending it. Then they'll hit you.
 

hampy

Well-known member
276 5
In the past year I have spoken to several accountants and several tax inspectors each of whom had a slightly different version of which was the best and legally correct route.
It would appear that individual tax inspectors have some leeway on how matters are treated, so it would seem that the way to proceed would be to meet with at least 2 accountants and get a spread of opinion, choose the most beneficial to yourself and then approach your personal tax office and see if they will accept the suggested method. As I am a long way from jacking in the day job and trading for a living I have not yet tried this for myself.
Good luck,
hampy
 

Trader333

Moderator
8,599 931
hampy,

I have also found this to be the case and it can depend on which Tax Office you are assigned to. One of my friends was investigated by the Tax Office and their own lack of understanding on the law was staggering. The investigation went on for over a year and the case was being constantly referred to supposd experts at different locations all over the country and still they could not agree as to how the law should be interpreted. In the end my friends accountant just kept appealing on the rulings and won the case.

The problem we have is that one Tax Office will see things in a different light to another and this is why you get such heated debates on whether tax should be paid as either income, capital gains and even whether tax is liable on spreadbetting if it is the only source of income.

I doubt it will be resolved in the near future and please dont ask me for more details on the above case as I am not prepared to say more than I already have.


Paul
 
 
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